GOP Tax Bill Would Prompt Automatic Spending Cuts

Those are the consequences under the pay-as-you-go law that Congress passed in 2010. That law requires tax cuts and certain spending increases to be paired with offsetting provisions. If not, the law forces automatic spending cuts. On top of Medicare, there will be another $85 billion to $90 billion in spending cuts in fiscal year 2018, according to CBO.

Congress could prevent the cuts, but that couldn’t be done under the fast-track procedures they’re using for the tax bill. That means they would need 60 votes—and thus at least some Democrats—in the Senate.

A Senate GOP aide said Republicans would seek to prevent that cut. Then, the aide said, it would be up to Democrats to join them or not.

That would cause quite a showdown.

"If this legislation is passed, it would trigger automatic cuts to Medicare totaling more than $400 billion over the next decade and unconscionable cuts to affordable housing, nutrition programs, education and other vitally important programs," said Sen. Bernie Sanders (I., Vt.), the top minority member on the Budget Committee. "At a time of massive income and wealth inequality, it is absurd to provide tax breaks to billionaires while cutting programs for the elderly, children, the sick and the poor.”

Richard Rubin

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Senate Republicans, Two Days Into Tax Bill Talks, Wait for New Plan

The Senate Finance Committee is done with day two of its markup—because there’s no concrete plan yet.

Chairman Orrin Hatch (R., Utah) said the modified version of the plan will be released later Tuesday. Asked by Democrat Ron Wyden of Oregon whether that would be at 10 p.m. or midnight, Mr. Hatch just said “later today.”

After a tense exchange about the speed with which Republicans are moving, Mr. Hatch ended Tuesday’s session and said the Finance Committee would reconvene at 9 a.m. Wednesday.

At WSJ Event, Executive Keeps a Close Eye on Excise Taxes

Paul Browning, CEO of Mitsubishi Hitachi Power Systems Americas Inc., is watching closely proposals for a federal excise tax on transactions between U.S. and foreign units of the same company – and will be visiting Capitol Hill this week to talk to lawmakers about it.

The provision has the potential to hurt Mr. Browning's firm, a joint venture of Japanese firms Mitsubishi Heavy Industries Ltd. and Hitachi Ltd that has created 2,000 jobs in the U.S. since 1999, he said at the WSJ CEO Council conference in Washington.

The company makes power generation equipment, some of which it exports to Mexico and elsewhere, he said, but it also uses imported parts and equipment that could leave it subject to the excise tax, he sad. He worries that the provision will discourage further production expansion in the U.S.

“The tax law could create a penalty for foreign-headquartered businesses that export from the United States,” Mr. Browning said. “We just want to make sure that anything that comes out in the tax bill doesn't disincentivize foreign direct investment.”

Ideally, he said, the provision would be amended to apply only to companies headquartered in tax havens.

Sen. Rand Paul (R., Ky.) is proposing to repeal the individual mandate to purchase health insurance and use the money for middle-income tax cuts.

Repealing the mandate would raise $338 billion over a decade because fewer people would be insured and the government would spend less on Medicaid and health-insurance subsidies. But it would introduce the messy politics of health care into tax policy.

Mr. Paul said he would use the money to allow a deduction for some state and local taxes.

The House bill repeals the deduction for state and local income and sales taxes but allows a deduction for up to $10,000 in property taxes. The Senate bill repeals the whole deduction, and that’s a problem for some House members who are willing to vote for their bill only because of that $10,000 deduction.

Sen. Rand Paul (R., Ky.) is proposing to repeal the individual mandate to purchase health insurance and use the money for middle-income tax cuts.

Repealing the mandate would raise $338 billion over a decade because fewer people would be insured and the government would spend less on Medicaid and health-insurance subsidies. But it would introduce the messy politics of health care into tax policy.

Mr. Paul said he would use the money to allow a deduction for some state and local taxes.

The House bill repeals the deduction for state and local income and sales taxes but allows a deduction for up to $10,000 in property taxes. The Senate bill repeals the whole deduction, and that’s a problem for some House members who are willing to vote for their bill only because of that $10,000 deduction.

Richard Rubin

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Rand Paul

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Sen. Claire McCaskill Suggests Tax Bill Won’t Simplify Rules

Sen. Claire McCaskill (D., Mo.) just picked away at one of Republicans’ images of tax complexity.

Seated next to a stack of books that include the federal tax law and regulations, she suggested the GOP tax plan, sold as a simplification, would actually add more complications and require new rules.

Ms. McCaskill, questioning Tom Barthold, the chief of staff of the nonpartisan Joint Committee on Taxation, offered to bet him a beer that a new book would be added to the stack to handle changes on pass-through businesses and international tax law.

The dry Mr. Barthold, after asking permission to be slightly facetious, noted that publishers like to leave old footnotes in those regulatory books.

Will CEOs Boost Investment as a Result of GOP Tax Bill?

A dispatch from National Economic Council director Gary Cohn’s appearance at the WSJ CEO Council.

Update: We now have video of the exchange:

Natalie Andrews

Gary Cohn,

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Sen. Orrin Hatch: Updated Senate Tax Plan Coming Today

An updated version of the Senate tax plan is coming later Tuesday, Finance Chairman Orrin Hatch (R., Utah) said as he opened the second day of the panel’s markup.

Today, lawmakers will discuss the current proposal and ask questions. Mr. Hatch said his changes will incorporate some of the 355 amendments that committee members offered.

“Everyone can then have time to read over the modifications,” he said.

Then, the committee will resume its sessions Wednesday and consider amendments.

It’s not clear yet whether the new version would make the proposal comply with the Byrd Rule, a requirement under the fast-track process that Republicans are using. That rule prevents the bill from increasing budget deficits beyond the scoring period, in this case 2027. Mr. Hatch said yesterday that business tax breaks are likely to be made permanent, suggesting individual breaks might not be.

Sen. Ron Wyden (D., Ore.) said the process was troubling because lawmakers were making major tax policy changes on the fly, with more changes coming.

“We are now asking questions on a bill that is not the bill," Mr. Wyden said.

Richard Rubin

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Orrin Hatch,

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Today in Taxes: Two-Ring Circus

We've got action on both sides of the Capitol today. In the Senate, the Finance Committee considers its version of the bill for a second day. Lawmakers will walk through the bill with the Joint Committee on Taxation staff and ask questions. We might even get some amendments.

On the House side, Republicans continue to pick up momentum toward a Thursday vote. Every day, we’ll help you keep track of what just happened and what'’s next in the tax debate. Follow along by selecting "Today in Taxes."

What Happened

The Finance Committee started what's likely to be a week-long markup. Their bill has a big hole in it, because it doesn't comply with the Byrd Rule that prevents long-run budget deficits. Fear not, says Chairman Orrin Hatch.

Earlier Monday, Mr. Mnuchin and Ivanka Trump were in New Jersey, pressing the administration's case for the tax bill. They did so in a state where Republicans are largely opposed to the plan because it would sharply limit the state and local tax deduction. They were flanking Rep. Tom MacArthur, who is backing the House plan.

The taxation of pass-through businesses—different in the House and Senate—is becoming a flash point for at least one senator.

One thing we're not likely to see is a dynamic score of the House bill. The Joint Committee on Taxation—working overtime on the House and Senate plans—says it is "not practicable" to come up with a full growth estimate quickly, according to a Congressional Budget Office report.

Sen. Ron Johnson Presents Potential Problem for GOP Tax Bill

While prospects for passage of a tax bill in the House this week are looking favorable, trouble is brewing in the Senate.

Sen. Ron Johnson (R., Wis.) on Monday identified himself as a potential problem spot for Republicans, who aim to pass a tax cut through the Senate the week after Thanksgiving. Mr. Johnson had earlier expressed concern that pass-through companies—the sole proprietorships and limited liability companies that pay taxes through their owners’ individual returns—were getting a raw deal. His comments on Monday showed that his concerns appeared to be growing rather than diminishing.

"I'm pretty well shut out of the process and I'm a little frustrated by it, to say the least," said Mr. Johnson, who wants to amend the legislation but who doesn't sit on the tax-writing Senate Finance Committee.

Mr. Johnson said he was concerned pass-through companies would end up at a disadvantage compared with corporations, whose top tax rate would drop to 20% from 35% under competing House and Senate versions of the bill.

"We were supposed to leave that competitive balance, that competitive position in place basically untouched when we made American businesses overall globally more competitive," Mr. Johnson said, explaining that the goal had been to move to a top 25% rate for pass-throughs in tandem with a 20% tax rate for corporations. "I don't know what happened along the way, but we're talking somewhere about 33% to 35% rather than 25%."

The Senate bill would create a new 17.4% deduction for pass-through business income that effectively creates a reduced rate for many pass-throughs but not professional-services businesses. The House has a special rate but limits on who can get that rate.

Reaching agreement could be a particular challenge in the Senate, where Republicans control just 52 of the 100 seats.

Siobhan Hughes, Richard Rubin

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Pass-Throughs,

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Ways and Means Chairman Optimistic Tax Bill Passes House This Week

House Ways and Means Committee Chairman Kevin Brady (R., Texas) said he is optimistic that Republicans will have enough votes to pass a more than $1.4 trillion, 10-year tax cut on Thursday.

"Leadership at least is very confident that we will have -- we do and will have -- the votes for passage," Mr. Brady told reporters.

He declined to rule out changes to the tax legislation that passed the House Ways and Means Committee last week, but he said "we don't anticipate major changes." Republican leadership can change the tax bill when it hits the House Rules Committee, a GOP-leadership-controlled committee that sets the terms under which legislation is considered on the House floor.

House Republicans later Monday night will count votes, a term known as whipping the votes that comes from fox hunting and referred to the person responsible for keeping hunting dogs from straying during a chase.

In a preview of the message that Mr. Brady may deliver to House Republican lawmakers, he said that the Thursday House vote was mostly about advancing tax reform and not locking Congress into a specific plan.

"This vote is about moving tax reform to that next crucial step, and then as the Senate passes their version out, working closely with them to find that final common ground," Mr. Brady said.

Mr. Brady said that he doesn't know whether the tax bill would add to deficits in the second decade, an outcome that would be fatal in the Senate, which is considering the tax legislation under fast-track procedures that would allow passage with only Republican votes. To be considered under those special procedures, the tax bill may create up to $1.5 trillion of deficits in the first decade and can't add to deficits in its second decade.

"We really haven't analyzed it in the second decade," Mr. Brady said.

Mr. Brady said that one non-negotiable item was preserving a property-tax deduction of as much as $10,000. The Senate has proposed eliminating all deductions for state and local taxes, while the House has proposed eliminating deductions only for state and local income and sales taxes, but capping the property-tax deduction.

As he has in the past, the Republican chairman said he was still open to repealing, as part of the tax bill, the Affordable Care Act's requirement that individuals carry health insurance or pay a penalty.

"The president has already indicated to me a number of times he is really interested in including individual-mandate repeal and it remains under consideration," Mr. Brady said.

Dynamic Score Not Ready As House Nears Vote, Budget Analysts Say

A full analysis of the economic effects of the House tax bill isn't available yet, according to a Congressional Budget Office document released on Monday. It's not clear if such an estimate will be ready before the House votes later this week.

The Joint Committee on Taxation "indicates it is not practicable for a macroeconomic analysis to incorporate the full effects of all of the provisions in the bill, including interactions between these provisions, within the very short time available between completion of the bill and the filing of the committee report," the CBO report says.

A macroeconomic analysis would gauge what might happen to economic growth, wages and capital formation as a result of the tax bill. It would also estimate how much additional tax revenue those changes might create. Those growth and revenue effects are among the reasons why Republicans are pursuing a major tax bill and House rules call for such "dynamic" scoring.

JCT is the nonpartisan estimator of tax legislation; CBO handles other estimates.

Richard Rubin

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A Bill Without a Hearing?

Senators love to argue about process, and here’s how it’s going so far in the Finance Committee.

Republicans point out they've had dozens of hearings on tax policy. Democrats say there have been no hearings.

Who’s right?

Well, both are, in a sense.

Republicans are right that the Finance Committee has been working on major tax policy for years. They’ve had working groups and options papers and public hearings. They’ve been hearing from constituents and debating ideas.

“We have been discussing tax reform for years and the time for action is right now,” said Sen. Charles Grassley (R., Iowa).

But they also haven’t had a specific hearing or deep discussion of the proposal that Chairman Orrin Hatch (R., Utah) released last week. That proposal includes novel ideas on international taxation and pass-through businesses that haven’t gotten thorough attention.

“This isn’t a real debate,” said Sen. Ron Wyden (D., Ore.), pointing to the years of work that led up to the 1986 tax law. “This is an abandonment of Reagan-style tax reform.”